No Loyalty or Responsibility from Dell - Don't Call Them "Lean"

Dell to close Austin plant, cutting more than 800 jobs | Statesman Business Blog

I'm angry. I try not to blog when I'm angry, so I'll try to watch my words carefully. Probably won't succeed.

This recent news hits home for me on many different levels. I was a Dell employee in 1999 and 2000, part of the support team that started up the "PN2" (later renamed "Topfer Manufacturing Center") factory in north Austin. It was Dell's showcase facility for building desktop computers, it really was a marvel. As I've written before, it wasn't "Toyota Production System" lean, but it had great flow and very very low inventory. "Respect for people" was often missing and this story just further illustrates that.

I was there when the first computer was built. I remember the engineering manager running across the plant to get the one plastic casing part that wasn't there to get that computer built. Oops! Even though I left Dell, that factory (online "tour" here) was still pretty special to me and impactful on my career. Now, almost eight years later, the place is being junked.

So what happened?

1. The knuckleheads running the place over-expanded their desktop PC manufacturing in an era when laptops are increasingly popular.
2. Dell got huge tax breaks from the taxpayers in North Carolina to build a new factory.
3. When capacity was not needed, they decide to close the factory in Austin, Michael Dell's hometown.

Poor planning, poor execution, now they're crapping on Austin and the people there. Where's the sense of responsibility? Where's the respect for people?

Would Toyota shut down their Toyota City plants to build cars in China? No way.

"But Dell is just doing what's right for the shareholders." Bullshit. They obviously had no commitment to the people of Austin, or they would have planned better to protect those jobs. It's upper management's responsibility to lead the company in a way that doesn't end up screwing the employees. I hate to seem like I'm playing "class warfare" here, but Michael Dell is a billionaire thanks, in part, to the people of Austin.

Who is going to, Michael Moore-style, do a "Michael and Me" film?

I can't find a single quote where Michael Dell says "sorry" or "it's unfortunate" or anything like that. Just talk of aggressively going after productivity and efficiency, keeping the Wall St analysts happy (there's not-so-coincidentally an analyst meeting going on with Dell executives this week). These greedy morons who bought derivatives based on mortgages given to people with zero income verification are going to tell anyone how to run a company?

“Any additional cuts to its bloated cost structure would be well received,” wrote analyst Brent Bracelin with Pacific Crest Securities iin a recent report to investors. “Operating expenses are at an eight year high of 13.3 percent, which suggest that tighter cost-containment efforts are needed to restore investor confidence.”

When I get home I'm putting on my old "Dell Hell" t-shirt (made by some former employees after some 2001 layoffs, I had bought one online). How sad.

From the article:

Analyst Roger Kay with Endpoint Technologies Associate Inc. said such a move would repair Dell’s tarnished image for manufacturing and logistical efficiency.

“They let things slip. They took their eye off the ball,” Kay said.

“They carved a real sweet deal in North Carolina, and they need to use a lot of the plant capacity there,” Kay said.

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Lean Cannot be Measured by Inventory Alone

I know many of you won't have access to this article from the latest Industrial Engineer magazine (from the Institute of Industrial Engineers) but I had to comment on it anyway. The piece, by Richard Shonberger, has the headline "Faltering lean" and has a callout that says "U.S. companies are doing poorly with lean."

At that point, I was drawn in. It's always an interesting topic, the struggles that companies face with lean. There's a whole book on How to Prevent Lean Implementation Failures and I have a separate blog on the topic. Lean gurus and experts are always bemoaning the high failure rates for Lean implementation and surveys are taken and discussed (as we did here). There's no shortage of things to write about and talk about with "Lean failures." The discussion isn't too much different than talking about "Six Sigma failures" or "ERP failures." It often boils down to a lack of leadership and a lack of commitment from the organization, as we've often discussed here.

In his IIE article, Shonberger highlights and focuses exclusively on a single reported financial number, inventory, as his measure of "leanness." I think this is a huge error. I am hesitant to criticize Shonberger, as he deserves much credit for the spread of Lean and Just in Time principles in the U.S. But, this narrow laser focus on inventory numbers does little to help others be successful in their Lean efforts, I believe. It would be like looking at data that shows that teams that win the Super Bowl tend to commit fewer penalties than other teams (I'm making that up, but it could be true) and then assuming that the key to winning the Super Bowl is to avoid committing penalties (and focusing on that almost exclusively as a goal or a metric). A low number of penalties won't necessarily lead to winning (you need to score some points and play some defense, as well).

Lean companies, such as Toyota, Danaher, or others might tend to have to have low inventory, compared to their peers, but low inventory isn't the primary goal of a business. That goal should be long-term profitability. That's how we should gauge the success of a company. Not the short-term profit this quarter, but long-term profitability. Look at Toyota -- the true measure of their success is the sustained profitability that allows them to fund growth and new technologies, creating stability that helps them avoid layoffs and the downward spiral of the layoff cycle.

Shonberger pulled inventory data, what he calls "the measure of merit" (again, I disagree with that assertion) from public companies, something that anyone can do online, and showed that inventory trends are not good.

"Of the 566 U.S. companies tracked, 50 percent show no clear trend in inventory turns and another 15 percent show at least 10 years of worsening turns. That leaves just 35 percent that have maintained a lean trend for at least 10 years or had that trend but faltered in the the most recent 5 to 7 years."

Shonberger continues to make his case by saying:

"Where we see lots of inventory, we conclude, rightly, that the facility is not lean. No other measure is so universal, objective, and available for research."

It might be true that having tons of inventory means you are "not lean" but does having very little inventory on the books prove that you are lean? Remember, Toyota defines TPS/Lean in two parts: eliminating waste (including inventory, as one type of waste) and having respect for people. To me, low inventory, in and of itself, is not enough to prove "leanness."

Shonberger points to Japan and how their inventory numbers have done better recently after 15 years of "malaise" -- and he credits outsourcing. That's a "Lean" approach? It's easy to have huge inventory turns when you don't make anything, if you're some sort of modern virtual manufacturer, the type who only has 10 employees for marketing and design. Is that the path Shonberger wants us going down?

He then points to Toyota and how their inventory turns have fallen from 22.9 (in 1993) to 10.1 (in 2006). But, Toyota is not the same company today as in 1993. It's not an apples-to-apples comparison. Toyota is building and selling more in the U.S. Is Toyota "less Lean" today than in 1993? That seems like a statement that is hard to back up, other than looking at the inventory data. Sure, Toyota has its struggles (defects and recalls), but Lean is only about inventory, right?

So why are companies struggling with Lean? Shonberger points to "weak support in the executive suite," and the temptation to "cherry-pick easy practices" like 5S and kanban instead of focusing on core issues of balancing demand and supply. Is this why Toyota is supposedly struggling with Lean, per the inventory measures? I doubt it.

Shonberger really loses me in his final paragraph when he points to Dell and Wal-Mart as two great Lean examples, he calls them "lean standouts." It's painfully clear we are working off of different definitions of Lean. Dell and Wal-Mart aren't followers of the Toyota model. Dell is just now starting to explore Toyota as a model (as I've complained about before) and Tesco is the clear Lean leader in retailing, not Wal-Mart.

I prefer my definition (shared by many others), which has balanced goals of improving quality, customer satisfaction, employee satisfaction, and company profits. Reducing inventory can contribute to some of those goals, sure. Those are goals that translate across industries. Hospitals aren't trying to get Lean for the sake of cutting inventory levels. That's not a goal that translates and I think it's further proof that Shonberger's definition of Lean is wrong or, at best, outdated.

What do you think?

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Lean TVs in Mexico?

Sharp takes a gamble on new TV plant in Mexico - USATODAY.com

Good article in the USA Today today. Sorry for the redundant redundancy there.

I'm reminded of an earlier post about Olevia building some TV's in the US. I'm also reminded of a comment that Jim Womack made in a podcast of mine (I think it was this one) where he asked the question, "What about Mexico?" Mexico has low wages AND close proximity to the U.S.

Sharp is starting to take advantage of that, not only doing assembly, but also doing the more intensive production of sheet glass that's used to make flat panel screens... in Mexico.

As the USA Today points out, since TV prices decline so quickly, the value drops while on the proverbial slow boat from China. By building in Mexico, they cut the lead time from 40 days to 7 days. That means more responsiveness to the market AND lower inventory. Not bad.

The downward pricing trend reminds me of the advantage Dell had when PC prices were dropping so quickly. Dell had such a tremendous supply chain advantage from buying components later than their competitors because of Dell's short response times to customers. Is Sharp poised to be the Dell of TV's? How ironic, since Dell went the traditional outsourcing route, farming out production of Dell-branded TV's to Asia, with the slow shipping times. Why didn't Dell learn from their PC success??

Is this a trend, will more companies be looking at Mexico as a "fast response" option from China? Does this work only in markets where products change quickly and/or prices fall rapidly?

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Dell to Focus on Long Term?

Can Michael Dell Refocus His Namesake? - New York Times

The Toyota Way philosophy preaches a focus on the long term business objectives or as stated in the book (and summarized on wikipedia):

"Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals."

I've written before here about how Dell isn't a Toyota Production System "Lean" company, although many people use the lean word to describe Dell. Why have I always made that argument? Because of Dell's management approach being so different than Toyota, it has nothing to do with supply chain efficiency or build-to-order approaches.

This new profile on Dell, the company, and Michael Dell, the CEO says:

“The company was too focused on the short term, and the balance of priorities was way too leaning toward things that deliver short-term results — that was the major root cause,” explains Mr. Dell.."

Straight from Michael, himself. I'll give him bonus points for referring to a "root cause," a term and concept we often work with in the Lean world. Having an overly short-term focus does sound like something close to a true root cause for a company's problems, instead of blaming people or other factors.

Toyota's culture is often described as one where people are encouraged to expose problems rather than hiding them, as we do in many traditional business cultures. "No problems is a problem" is the famous expression. When Allan Mulally took over at Ford, he noticed how the Ford culture was one where people would hide problems from open discussion (most likely out of fear, as Deming would have pointed out ironic since he worked so much with Ford in the day).

Michael Dell started trying to change the Dell culture:

AS soon as he took over as chief executive, Mr. Dell declared a two-month “amnesty” to encourage people to discuss problems and deal with them quickly, without fear of being fired or demoted. Otherwise, Mr. Dell says, managers might have understated troubles and defended past decisions.

Why just a two-month amnesty? Why not make that part of a permanent culture shift at Dell? I had a manager at Dell, back in 2000, who said (and believed this), "My job is to make my boss look good." Really? I thought our job was to actually make things good, not to make things look good. Hence the cultural challenges at Dell.

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Don't Blame Lean for Part Shortages

Part Shortages Mean Even Longer Delays

First, as a refresher course, here's my take on why Dell is not a Toyota Production System company. The article I linked to above blames "Lean" for part shortages in the laptop industry, this includes Dell.

Some experts are blaming the parts shortages on the unexpected growth of demand for notebook computers around the world. Others are blaming manufacturers such as Dell for keeping only 1-2 weeks of parts inventory on hand ... the "lean" manufacturing policies such as only ordering parts as you need them may indeed have contributed to the delays we're seeing now.

I think the experts who are blaming "Lean" are flat wrong. "Just In Time" inventory is just a part of the Lean methodology. JIT is also *not* built upon the premise of having suppliers half way around the world. With all of their suppliers in Asia, especially compared to ten years ago, Dell can't be expected to get by with such low inventories (and really, this inventory is at their "supplier logistic centers," where inventory is cleverly kept off the books). As supply chains get longer, you're bound to have more variability in your lead times, meaning you have to react by keeping higher "safety stock" levels if you want the same service levels and parts availability. Even though the inventory is off the books, Dell does make certain purchase commitments to their suppliers, meaning that excess safety stock will eventually lead to excess inventory that has to be bled off by offering discounts to customers (hey, we'll give you this 21" monitor instead of the 19" for just a few bucks more).

If this was a true "TPS" system, what would Toyota do if they built PC's in the United States? Would they have done more to keep suppliers nearby in the U.S.? Even going back a decade, we had more parts like motherboards, RAM, and hard drives made here in the country, if I remember right. Would Toyota have done less to push suppliers overseas to cheap labor? Ten years ago, Dell system cases were still produced in Texas, a relatively short supply chain. I believe that's no longer the case. Would Toyota build and ship PC's from Asia to the U.S.? The "final leg" of the supply chain would be longer, but maybe you would have less waste from shorter supply chain legs with the suppliers? Laptops are already built and shipped from Asia (since they're small), but Dell still builds desktop PC's and servers in the U.S. because they're bigger and heavier to ship (and therefore, more costly to ship). Maybe they're suboptimizing that final leg because it's easier to measure the shipping cost to customers than it is to calculate total end-to-end supply chain costs. I hate to think I'm advocating moving PC production overseas, since I helped start up a Dell factory in Austin in 2000...

One other thing that hurts the PC industry site lack of "heijunka" or level loading. To have "just in time" inventory or kanban, every Lean guru will teach you that you first need level production. This helps prevent the "beer game effect" that hurts the suppliers (and makes it harder for them to deliver) given that sales/demand variations are amplified as you go back in the supply chain. Dell traditionally has a huge "hockey stick" effect at the end of each quarter, where sales skyrocket -- not necessarily because of pure customer demand but because sales incentives (for the company, meeting quarter targets, and for individual salespeople) drive demand to be non level. Would Toyota do things to drive sales to be more level so that production could be level and the supply chain wouldn't struggle so much? I'd think so.

So, long story short -- is Lean hurting the PC industry? No. I'd argue its the long supply chains and the lack of level loading that's hurting them. Neither of those things are "Lean" practices at all. To figure out, why do we have part shortages, it requires a few more "whys" than a single why that blames "just in time." Why would you expect "just in time" to work in the PC industry given their other practices?

Final side note, you might remember this post about how Dell had EXCESS inventories reported last year. How is this possible if it's true "just in time?"

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Don't Look for "Lean" in the PC Industry

How H-P Reclaimed Its PC Lead Over Dell - WSJ.com

Today's WSJ article doesn't focus on the Dell layoffs (although it does mention them, as did the Evolving Excellence blog post on the layoffs), but rather the competitive dynamics between Dell and HP.

First, on Kevin's post -- as I've stated here before, "Dell is not TPS." I would agree with the comments on Kevin's blog that Dell's layoffs aren't "because of Lean" because Dell doesn't really subscribe to the TPS approach. Dell's layoffs are typical business moves to "increase profits" (something maybe only Wall St. is impressed with). As John Hunter recently put it, layoffs are a sign of management failure, and I think that would apply here. Dell grew the number of employees much faster than revenue in the past few years (sounds like throwing people at problems).

Back to the WSJ article... it focuses on the head of the HP PC unit, Todd Bradley (which plays into the "hero myth" of executive leadership) and their efforts competing against Dell. HP realized that they couldn't "out-Dell Dell" and focused on their strengths in the retail channels (smart move).

The article also illustrates the cycle of layoffs that plagues the industry:

On Thursday, Dell announced its first layoffs since 2001 in its effort to increase profits.

For years, H-P tried to copy Dell's approach. Under former CEO Carly Fiorina, H-P slashed its PC prices, but that landed it with deep losses. Then it hacked at its own costs by laying off thousands of workers in order to compete with Dell's low-cost structure.

What a nasty cycle to be in, each company chasing each other's layoffs in an attempt to become "low cost."

Here's another example of non-TPS thinking:

At H-P, as at palmOne, Mr. Bradley instituted weekly progress reports to track operations and find fixes. For instance, he demanded weekly rundowns of notebook-computer deliveries to U.S. stores down to the hour they arrived. The reports allowed Mr. Bradley to see where bottlenecks were -- and whom to blame.

If you're looking for "whom to blame," instead of thinking about the process, how the process broke down, and how that problem could be prevented, you're not a TPS leader or a "Lean company."

Compare the HP approach to a quote I love from Toyota's Gary Convis:

"You respect people," he said. "You listen to them, you work together. You don't blame them. Maybe the process was not set up well, so it was easy to make a mistake."

So, before you go anointing Dell or HP as "lean," look beyond the numbers (such as low inventory for Dell) and look at how the company manages and leads its people.

Updated: Wal-Mart and Dell New Bed-Fellows?

Dell, in Shift, Will Offer PCs at Wal-Mart - New York Times

I recently wrote about Dell's move away from strict adherence to the direct selling model (and Mark Spearman talked about the idea and how Dell shot him down in a LeanBlog Podcast recorded before Dell's announcements).

Dell has announced they will sell 2 desktop models and 1 laptop model through Wal-Mart stores. I'm curious to see if pallets of PC's will pass through the massive Wal-Mart distribution centers or if Dell will ship direct to stores (with each store taking the traditional role of "customer").

Another question -- will Wal-Mart force Dell to ship containers full of PC's from Asia instead of trucking them from Texas, Tennessee, or North Carolina, where they currently build desktops for the U.S. market? (Laptops already come from Asia). Kevin Meyer had an excellent post at the Evolving Excellence blog recently that talked about Wal-Mart discovering how long, slow supply chains from Asia lead to inventory problems.

Wal-Mart often gets lumped into the "lean" category in the business press because they have low inventory. I'd argue that Wal-Mart isn't lean because they are famous for pushing suppliers to China, except the one that famously said "no" (and another link to Kevin). Dell has also done the same thing over time -- I know many electronics are ONLY made in Asia and Dell might have no control over that. But, the PC cases used to be built in Texas, but Dell shifted production overseas in the chase for cheap labor. That's another reason I don't like to consider Dell a "lean" company (in the Toyota sense), although they are working on that recently.

Dell's saving grace has been the realization that it's better to continue building the bigger and heavier PC's and Servers in the U.S. instead of Mexico, where the labor is cheaper (but logistics are slower and more complex). Other than that, it seems that, from a sourcing standpoint, Dell and Wal-Mart are already like-minded (sourcing laptops, components, TV's, etc from Asia), so Wal-Mart might as well sell Dell's products.

Updated: A few more thoughts after reading a few more sources while traveling today.

USA Today said:

Unlike tech-focused retailers such as Best Buy, Wal-Mart won't force Dell to create big shelf displays or keep certain models in stock, he says. They'll just stack and sell whatever PCs Dell sends them, he says.

I wonder how true that really is. Does that mean Dell can update the specific configurations without informing Wal-Mart? How will Wal-Mart know how to label and price the PCs? Or is the price set for "PC Model #1" and Dell can ship different models that meet that price point? Interesting retail model.

The other thing that occurred to me -- all of these articles ignore Dell's earlier forays into retail in the early 1990's. My first PC, for college, was a Dell 386 PC that my parents bought for me at a "Softwarehouse" retail store in Michigan (the chain was then renamed CompUSA). It just amazes me that the press misses details like this. They make it sound like Dell has always operated under the direct model. Dell moved out of retail because they could make more money selling Direct. If that equation changes, of course Dell would move back to retail channels (at least with a very small percentage of their production) if they thought it would be more profitable.

A Revolution, not a Religion

Dell Could Go Beyond Its Direct-Sales Model In Bid to Bolster Growth - WSJ.com

Dell’s Founder Is Rethinking Direct Sales - New York Times

Dell Computer (now Dell, Inc.) is known for its famous "Direct Model." It's almost trivia at this point, but my first PC for college was a Dell 386 PC bought at a retail store, "SoftWarehouse," the store that became CompUSA, which is going through downsizing and store shutdowns, which is a different story.

After that experiment with retail channels (and having to let the retailer take their cut), Dell pulled back and went 100% direct (with "direct" sometimes meaning direct to a corporate wholesaler or leasing company, but consumers could only buy direct).

I think this is an interesting lesson in corporate dogma... Dell is now considering going through retail channels again.

Michael Dell, who recently came back as CEO, said:

“The direct model has been a revolution, but it is not a religion,” Mr. Dell wrote in a memorandum sent on Wednesday to 80,000 Dell employees.

I think this is, generally speaking, a healthy mindset. Any business that becomes so enamored with "how things HAVE been done" sometimes has trouble thinking about how things SHOULD be done. If customers want a PC "now" (meaning go to the store this afternoon to get one) and they don't care about customizing it, shouldn't Dell listen to the market? Is there anything that Toyota could potentially become enamored with? What about your business?

I recorded a LeanBlog Podcast interview with Dr. Mark Spearman, of Factory Physics fame, over the weekend (will be released in coming weeks). Spearman told me a story about how he did some consulting for Dell and asked them about building some "plain vanilla" PC's in a "build to stock" manner to help level out production for times when "build to order" volumes were down during a day or during a week. This idea was shot down as NOT the way Dell did things.

Dell used to be a "direct manufacturer" (with PC's), but they moved away from that model with new products (TV's, PDA's, printers, etc. that are built by contract manufacturers or partners). There's an example of moving away from how things used to be.

Then, this news came out that Dell is re-considering retail channels, basically doing what Spearman recommended, building some items to stock for certain customer expectations.

I'm writing about Dell in the Lean Blog because many experts lump them into the group of "Lean" companies. I've said it before, Dell might have low inventories (and other "lean" metrics), but they haven't traditionally subscribed to TPS philosophies. As I've also posted about before, that appears to be changing, if you look at this job posting. I'm happy to see Dell exploring TPS approaches (hopefully the management system, not just the tools). I'm glad to see "we've never been a TPS company" not being an excuse to look at how TPS can help them.

Job Opportunity with the "Dell Lean Model"

Lean opportunities coming to Central Texas

I've been critical of folks who lump Dell into the "lean" world, since Dell hasn't really done much according to the Toyota model (previous posts on Dell). Dell developed its own model, the Dell Direct model, and it served them well during their boom in the 1990's. There's certainly something positive to be said for developing your own model for your own industry and your own company. That obviously worked well for a while.

However, Dell has hit (relatively) rocky times in this decade, in some part, I think, from moving away from the direct production model (with PC's) to a direct selling model (with PDA's, printers, TV's who are built by others). Dell has struggled through cycles of layoffs , outsourcing, and internal struggles that have, I would suspect, hampered their progress as a company.

It's interesting to now see that Dell *is* looking toward Toyota methods, as evidenced by the job posted over on the Message Board (link above). Maybe it' s a positive sign. Note: it's not an open job requisition, but they're looking for future candidates. Contact info for a Dell contact is posted over there on the board.

It will be interesting to see if Dell can merge Toyota methods and philosophies into their own very strong culture and operating model. Is Dell looking for outside experts to "make them Lean" or are they really looking to impact the way line managers and company leadership operate? A job like that has the potential to be very impactful, but it could also be a road to perpetual frustration.

I won't necessarily share all of the stories here, but when I worked for Dell (1999-2000), I was frustrated at the lack of Toyota Production System mindsets and approaches in the factories. Dell was growing so quickly, it was very much a "move the metal" mentality, similar to typical mass production mindsets. Sure, internal factory flow was very good, but there's so much more to Lean than "flow." But, that was a long time ago at this point, so I'm not the best commentator on Dell circa 2007.

Dell, Wall St., and Toyota

Goldman upgrades Dell on turnaround hopes

Here's another contrast between Toyota and Dell, particularly striking in context of my recent podcast with Norman Bodek:

Dell shares rallied nearly 3 percent Monday after Goldman Sachs upgraded the stock to "buy" from "neutral" amid calls on Wall Street for the company to cut jobs and improve profit margins.

Meanwhile, a report in the Wall Street Journal's "Heard on the Street" column highlighted the argument for Dell to reverse a sharp rise in its workforce of over 50 percent during the past two years. Bernstein analyst Toni Sacconaghi, among others, has called for Dell to cut jobs by 10 to 15 percent.

Problem #1: Dell revenue was $49B in 2005 and $57B in 2007. How you grow the workforce 50% with only a 16% increase in revenue is pretty astounding. This is yet another reason why I don't like lumping Dell into the broad category of "lean" companies. Is Dell throwing people at it's processes rather than improving the processes themselves? Adding so many people so quickly leads you to....

Problem #2: Only Wall Street can see huge job cuts (10% of 82,200 employees is 8220 jobs) as a positive thing for a company. Toyota has gone over 50 years without huge layoffs, Dell does it every few years (starting in 2001). Think about the cost of poor morale that comes from these boom and bust cycles (and Dell's "boom" wasn't much of one). Think about the loss of human capital.

I'm guessing that one reason Toyota has been able to avoid layoffs is prudent and careful hiring in the first place. Dell might do well in "lean" measures of time to cash and inventory, but lean is about more than pure financial measures. I can't see how Dell can do well on the people side with all the hiring the firing and the fear that it must create within the organization.

Dell Hires Lean Guy From Selectron

ARNnet - Dell hires Solectron CEO, forms operations group

A frequent theme of mine is that Dell should not be lumped into the category of "Toyota Production System" companies even though many people (including some respected lean gurus) call Dell "lean."

Dell has hired Michael Cannon, most recently the CEO of Solectron, a contract manufacturing company that has won multiple Shingo Prizes, a company that says lean "permeates everything we do." Cannon will lead a newly created Dell global operations group. I assume he will do more to bring lean thinking to Dell. But what does that mean, exactly?

His job includes the responsibility for opening factories that are closer to customers and improving the company's supply chain, Dell said, noting that plans are underway to add new factories in India, Poland and Brazil.

Dell has spread factories around the world with the goal of building close to their customers. That sounds lean, I suppose, with the goal of reducing cycle times and total supply chain costs. But, Dell has moved in the complete opposite direction from that by pushing any remaining U.S. suppliers abroad and assembling laptops for U.S. customers in Malaysia instead of Austin or Nashville, as they used to do (and this was only final assembly even when they were "Made in the USA."

Is Dell just talking a good game or really looking to change their tune? Dell does have some people they've hired with Toyota-type backgrounds, but I don't know how much impact that's really had at the factory level, I'm not that close to things anymore.

Does anyone have experience with Solectron and their approach to lean? Do they just focus on lean tools or do they also focus on the people side? The Solectron lean web site talks about Value, Value Chain, Pull, Flow, and Kaizen (Kaizen Events).

Toyota doesn't really use "Kaizen Events." At Toyota, "kaizen" is more of a daily improvement process that doesn't require week-long events.

I don't see much about quality in Solectron's definition of lean. That pretty much lines up with my first-hand experiences at Dell, when I worked there in 1999 and 2000. Dell was great at flow, inside the factories. But, the flow through the entire value stream wasn't that great and I never liked the way they treated people at the shopfloor level.

I also remember how Dell, circa 1999, only cared about production quantity numbers (as did GM, circa 1995). Dell was better at the flow and production volume game, but quality wasn't the primary focus. All of their end-of-quarter incentives for the PC assemblers were volume, speed, and quantity driven. "You get what you measure," right? I asked a manager why we didn't have incentives for quality and I was told, dismissively, "well, quality is a given." Is it? That didn't seem very lean to me. That's why I say Dell isn't a "TPS" company.

Toyota Georgetown's definition of TPS/Lean (they don't use the word "Lean") does much more to include quality and people to the discussion, not just flow.

Solectron talks about combining Lean and Six Sigma. Toyota doesn't use "Six Sigma" (though they'll use some statistical tools) and certainly doesn't play the "LeanSigma" card at all.

Seems like we have two totally different views here, Toyota's and Solectron's/Dell's. What do you think? Is it a waste of time to think or talk about this?

Dell: Make or Buy?

Dell rings Bell to run US - Sunday Times - Times Online:

It's a common phrase in the manufacturing world, the "make or buy" decision. One of my pet peeves came up in an article about Michael Dell returning to the formal CEO role:

"Dell has already stopped making digital music players, but its founder would not be drawn on what else might go. Dell has sought to apply its famously lean manufacturing model to many electronics products besides its core business in personal computers. It now makes printers, TVs and networking equipment."

This is such a fallacy about Dell. First off, Dell isn't "lean manufacturing" (at least the way I define it). They don't make TV's or printers, never had. Dell chooses to buy them and re-sells them to you, in a "direct" model.

It's "direct" in that you buy right from Dell, as with PC's, but the supply chain is a little different. The TV's and printers are assembled in Asia and pushed across to U.S. warehouses, where Dell ships it out to you. That's not a whole lot different than HP's supply chain when HP sells it direct to you. Same thing with laptops, pretty much. They used to be assembled in Austin, now they're shipped from Asia.

People wonder why HP is "catching up" to Dell. It's because their supply chains aren't that different anymore. You could argue Dell is slipping back to HP.

Dell has never transferred its PC manufacturing model to other products. Even with a desktop PC or server, most of the "Value Add" (the components) is done by other companies, Dell's Asia vendors.

I wish they would try. Some companies (Olevia and Sony) ARE assembling TV's in the U.S.

Are Annual Reviews Killing Your Morale?

Deming listed the annual review process as one of the "deadly diseases" of management.

From this website:

Evaluation of performance, annual review, merit rating.

• nourishes short-term performance
• annihilates long-term planning
• demolishes teamwork
• promotes competition
• builds fear
• promotes playing politics
• destroys morale
• it leaves people bitter
• encourages mobility of management

I've certainly seen all of that in my career and I'm seeing it this year. I'm going to post a podcast soon with Eric Christensen, the president of a self-described "Deming company." Eric will talk about how they abolished their sales incentive programs and how that has actually helped them thrive.

Since it's annual review season, do you have any horror stories to share?

One horribly demotivating thing I saw back when I worked for Dell happened to a friend (yes, it really was a friend, not me). She was fresh out of business school and had worked her butt off for six months. She was told by her manager, "I would rate you a '1' but nobody gets a '1' in their first year, so you get a '2'." Arbitrary rules and custom meant she got a smaller raise than she deserved, they told her as much. That did more to sap motivation from her than anything they could have done. It wasn't fair and it wasn't good for the company.

Annual prizes, quota contests, and "incentives" often have the same effect. Do you have an award or recognition for the "top" person in your group, organization, or company? How does that make all of the "losers" feel when they aren't the top person? If you can only have one "top" person, do you think about the demotivating impact that has on the others?

I wish more companies and leaders listened to Deming or hadn't forgotten about him at this point.

So what did Deming suggest? It was always a simple mandate, hard to execute:

Substitute Leadership

Toyota Video Online

Lean Six Sigma Academy Blog: The Toyota Way

Here is s news story that Ron, at the Lean Six Sigma Academy Blog, found on YouTube. The video is below and I had a few comments.



First off, the reporter says that Toyota builds cars just like Dell builds computers. That couldn't be further from reality. Here is an earlier blog piece of mine on that topic.

1. Dell does not subscribe to the Toyota Production System or Toyota Way approaches. Dell has a very different management system and has only, in recent years, started looking into the Toyota approach. They have never said that they patterned themselves after Toyota.
   
2. Dell builds everything (or virtually everything) in a customized way for a specific customer (except maybe QVC orders, but I don't know that for sure). Toyota builds a lot of its product for dealer orders and doesn't have the level of customization that Dell does.
3. Dell and Toyota have very different cultures. I worked at Dell and I've obviously studied Toyota, going back to before my Dell days. Dell was nothing like Toyota, that's one real weakness that Dell had, the management and leadership culture.

I don't mean to dump on Dell. It's just that Dell and Toyota are different in fairly significant ways. It does a disservice to true lean thinking to lump Dell in with Toyota. Sure, Dell builds computers pretty quickly and their factories are amazing examples of flow, but the similarities end there.

The difference between GM and Toyota isn't as simple as "push" versus "pull." There is a better example in the video about how Toyota only has one person looking at quality at the end of the line, while non-lean automakers have employees "crawling over the vehicle" as they inspect quality into the process. Toyota's approach of "building quality in" is a better approach and the video gets that right.

The video also talks about "just in time" delivery of parts. That is something that Dell also does. But, Toyota tends to group suppliers near their final assembly plants, keeping total supply chain inventory low. Dell buys its parts from Asia, with slow and relatively unresponsive supply chains with high inventory. Dell is criticized for merely pushing inventory back on suppliers, who hold parts at a shared warehouse near Dell's factories. It's more of an accounting trick than real supply chain mastery.

The video also makes a proper comparison in the management cultures, including "respect for people" including employees, suppliers, and customers. That's not something that Dell really focused on, from my experience. Dell had the production mindset and culture of mass production, at least in the way they treated people.

The video also correctly captures the culture of kaizen and teamwork. Toyota people talk about how Toyota will never "kaizen someone out of a job," an important part of the lean culture and something I don't remember Dell practicing at all. Toyota hasn't had layoffs since 1950. Dell has gone through mass layoffs in this decade, after their hypergrowth slowed.

OK, sorry to get sidetracked on Dell. It *is* an excellent video about Toyota, if you ignore that comment about Dell and Toyota being the same.

Can You Really Buy An American PC?

News From PC Magazine: Can You Really Buy An American PC?

Yes you can, it depends on what you mean by "American." Dell has always built desktop PC's and servers here in the U.S. By "built", I mean "assembled", as all of the components are made in Asia.

Dell has long resisted the appeal of cheap labor in Mexico (physically not far from Austin) and has kept building PC's in Austin. In fact, they built newer factories in Nashville and North Carolina. Laptops are primarily built and shipped from Asia, but PC's and servers are 1) more customizable and 2) more expensive to ship quickly. So, it makes sense to build them here. Unless you're HP (more on that later).

Even that said, it's probably considered big news in the industry that Gateway is building a new factory, also in Nashville.

A Gateway person said:

""When we locate, we want to locate on the most efficient logistics supply chain location possible," Riggs said. "Logistics is a much bigger deal than even labor costs. So the center for manufacturing really needs to be the closest proximity to the customer base. In that standpoint, Nashville is a better center of gravity."

Gateway had tried American manufacturing when they started:

"Gateway's Bruce Riggs, senior vice president of operations, admits that operating costs are higher in the U.S. than they would be if Gateway manufactured in Asia, but the company believes it's worth another try. Gateway has had manufacturing facilities in South Dakota, Utah and Virginia, all of which are currently closed."

Sure "operational costs" are higher, most likely defined as labor, which is a small percentage of a PC's costs. The "touch time" to build a PC is a matter of minutes. There's not much labor involved, even with PC's being built by hand on an assembly line.

But, Gateway is correctly seeing that there's more at stake than operational costs. If you consider "total cost", including logistics and shipping costs, the U.S. makes more sense. If you consider the value of being close to your customers and being able to ship custom PC's within 5 days (as Dell does), China is less appealing. You can't economically get a large desktop PC from China to the U.S. in 5 days. Gateway used to follow the Dell model, then they got reliant on pushing PC's to retailers, which then led them down the "cheap labor" route.

Another competitor, Hewlett Packard, was amazingly weasel-like in their refusal to comment:

"Representatives from Hewlett-Packard said that they do have factories in the U.S., but declined to say where and whether those factories make actual computers or other electronics."

So maybe by "factory", they mean a place where returns are processed? I've read other places that 100% of HP's desktops are built in Asia. They're built using a non-lean "push" model, where machines are built based off of long-term forecasts and are pushed to retailers like Best Buy. This practice might look cheaper (on labor), but there's inevitable waste when HP builds (I mean, pays others to build) products that customers don't want. We call that the "Waste of Overproduction" in the lean terminology.

Is your company doing like Gateway or HP? I think the Dell and Gateway approach is clearly the more "lean" way to go.

Here's an interesting American-based competitor: "Union Built PC" company. If you are working on lean in a union shop, maybe you can build some goodwill by buying PC's from them? Don't consider this an endorsement, but I find it interesting that they wrap themselves around a union-driven marketing strategy.

Once Again, Dell is Not TPS

Dell: Facing Up To Past Mistakes: Financial News - Yahoo! Finance

I've written about this before and I think this article highlights some of the key differences between Toyota and Dell. Dell's "Direct Model" has often been compared to Toyota and is sometimes called "lean".

I think that's a mistake. Sure Dell is "lean" in the sense that they avoid most overproduction by building PC's, laptops, and servers on a build-to-order basis (we'll ignore the overall supply chain and non-customized products, like printers). Their factories are great examples of flow, raw material comes in one side, finished product comes out the other, with minimal WIP in between.

But, lean isn't just about reducing waste. The Toyota Production System is also about "respect for people," meaning your employees, suppliers, and customers. Dell definitely scores higher on "reducing waste" than they do on "respecting people."

In the article linked above, Dell (the company, not the CEO) admits past mistakes.

For one, this move (now fixed) shows how much contempt they must have toward customers:

Last year, to discourage people from calling at all, Dell removed the toll-free service number from its Web site, a move that Hunter says "falls into the stupid category." It put the number back a couple of weeks ago.`

This article mainly quotes Dick Hunter, former head of manufacturing, who is now responsible for customer service.

As a factory guy, Hunter is trying to copy the notion of "andon" signals:

"If he has his way, workers in the company's call centers will soon have a colored flag to raise when they run into trouble helping a customer. When the flag goes up, a supervisor will come running to help out. It's an idea Hunter cribbed from Dell's computer factories, where an assembler can raise a similar alarm. "In the factory, if there's a problem, he flicks on a light and the next-level (builder) comes running," says Hunter. In the call center, "why not do the same?""

Why not do the same? Let's think about this... in a factory, you have a physical product that requires a person to run over to help. With a call center, the thing that needs help is "virtual", it's a caller who needs help. If that caller is going to be pawned off on someone else who can actually help, couldn't they just transfer the call without someone having to run? Don't they already do this when they transfer you to "Level 2 support"?

So by having the second level person come physically running over, I have to wonder: Is the first tech going to put the caller "on speaker" so the second tech can help at the same time? Is the second tech going to provide any coaching to the first tech so they won't need help in the future? Maybe Dell should just improve their training and reduce turnover, so there's less need for help?

To me, it sounds like Hunter is just blindly copying something that "worked" in the factory. It seems like having a call center full of people running back and forth might not be effective or safe, even.

To give Dell some credit, they are looking at "cross training" the call center techs so they can actually help with more tech issues and avoid the dreaded call transfer that leads to customer delays (or outright disconnections).

Hunter thinks the solution is to treat the call center like a factory. Now, many call center reps are trained to solve only one type of problem -- say, a hardware glitch on a Dimension desktop. That explains why it's so common for the agent who answers a call to have to transfer it in search of a techie with the right expertise. Hunter estimates that almost 45% of calls to Dell require at least one transfer. "That's terrible," he says. "It's like delivering materials to the wrong factory 45% of the time."

Just as each Dell factory worker is trained to assemble different types of computer models, Hunter plans to train the phone reps in fixing more types of machines. That's supposed to increase the likelihood that the first person who answers a call will be able to help.

So cross-training should help, if Dell is willing to invest in their people, that sounds like a step forward. That's a TPS concept, investing in your people and helping them grow (while doing right for the customer).

I'll end with a few items that just kill me though. Another TPS concept is the "andon board", a display that shows status of the line or factory and where help is needed. This isn't a revolutionary idea for call centers, this has been standard practice for a while.

Dell will install large monitors to let workers see the number of callers who are on hold. Hunter will have access to each board from his desk so the centers will know, he says, that "Big Brother is watching."

Wow. I can't believe Hunter said that. For one, if that's the mentality, that you have to be "Big Brother" to make sure your workers are actually working, your company is a mess. The company certainly seems to subscribe to the notion of "Theory X", that people will goof off and steal their paycheck from you if not watched. Yikes. The purpose of an andon board isn't to be "Big Brother", it's to identify places where a Team Leader can offer assistance and continuous improvement. Even if Toyota wanted to act like "Big Brother," they have the political saavy to NOT say things like that to reporters.

Last thing -- Dell's customer service and reputation have taken a sharp fall the past few years. I'm sure part of the "root cause" of this is the Wall Street cost mentality.

The bigger question, though, is whether Dell has the stomach for investing in better service. It plans to spend more than $100 million this year on the effort, far more than it spent last year, when its expenses were 9% of sales, compared with 13% for Apple and Hewlett-Packard. Hunter believes his effort will ultimately pay for itself by boosting sales. But in the meantime, as analyst Maxwell points out, "It sure doesn't help Dell make its quarterly numbers."

So here you have Wall Street telling Dell that it's bad business (in the short term) to provide good customer service. That explains a lot right there.

Dell and HP Margins

Independent Online Edition > Business News

Dell has been on the bad side of Wall Street for a while now, the stock is some 30% lower than it was in 1999. I might comment more later on Dell's troubles, there is a lot of debate about "what's wrong with Dell?", including this article from Slate, with an inappropriate "Is Dell Dying?" headline. Come on, this is a growing, profitable company. They're only "dying" from a Wall Street perspective.

The Slate article does point out two things correctly: 1) it's hard to maintain a constant percentage growth rate as your revenue grows. Going from $1B to $1.3B (30%) is not the same as trying to go from $50B to $65 (also 30%) in a year. 2) With falling prices, Dell has to increase production volume by 25% to have sales revenue increase 15%. But, Wall Street is obsessed with growth. If only they were obsessed with quality, customer service, and lean production. I guess that's the price one pays as a public company (well, Michael and many working-class "Dell-ionaires" got rich in the process, at least).

One thing I'll say in Dell's favor is that they still seem committed to manufacturing here in the U.S. They seem to take the Toyota-like approach of building close to your customers, maintaining assembly work in Austin, Nashville, and soon to be opening in North Carolina (another case of government "creating jobs", I guess)

HP has moved 100% of their production to China, as reported here. HP is obviously following typical MBA, finance, and Wall Street thinking that they "have" to go to China and its low wages in order to compete. But, they have a bloated supply chain between the factories and U.S. stores.

So how do the following companies stack up?

• HP, with 100% of its production in that manufacturing hallowed ground, China
• Lenovo, a Chinese company that absorbed IBM
• Dell, with significant U.S. assembly

"...this year its operating margins on computers are expected to be twice as high as HP, at 8 per cent, while Lenovo is barely at break even," according to this news source.

An educated guess is that labor is a small percentage of a PC's cost. So, even if HP and Lenovo PC's were built in Chinese prisons with slave labor (I'm not suggesting that, Wall Street), does their bloated supply chain outweigh the labor cost savings? Apparently so.

I hope this is a lesson to other industries.... Dell can compete against China by staying close to customers. So does American Leather, another Texas company. And so does Toyota. You can too.

Update (5/18/06): Hello to my Wall Street readers, you might also want to check out this posting about insightful analyst comments on Ford and how some of the lean manufacturing world reacts to your guidance.

Come on MS, Let Dell Have Their Advantage

WSJ.com - As Microsoft Fumbles, Marketers Supplant Tech Managers:

I could care less, personally, if Microsoft delays their next version, "Windows Vista." But, there's an interesting manufacturing related item toward the end of the WSJ article.

"Analysts briefed by Microsoft say the company, while facing a delay to ensure the quality of the product, might have been able to deliver the software by late November. But that could have given an advantage to companies such as Dell Inc., which sell directly through their Web sites, while creating a problem for rivals, like Hewlett-Packard Co., that would take time to deliver machines to their retailers."

I'm not trying to provoke the "is Dell lean. ala Toyota?" debate. In the PC industry, everyone has been trying to mimic Dell's build-to-order and/or direct models, much as everyone in the auto industry is trying to mimic and copy Toyota. Dell created their own system, they didn't copy Toyota by any stretch (yet many lean gurus mistakenly lump Dell into the "lean"/TPS crowd).

The PC industry has had about as much success copying Dell as GM/Ford have had in copying Toyota. There are many marketing and service reasons behind this, but HP and others have been doing pretty well selling through their retail channels, like Best Buy and CompUSA. But, this channel still looks like a push system and there's supply chain / channel inventory, I'm sure it's significant.

Point is -- the cycle time for Dell to get new product into customers' hands is much quicker than HP and the PC push-manufacturing crowd because they build-to-order and ship direct. Dell could have the Windows Vista install on their servers November 25th and get systems to customers November 26th.

How long would it take HP to get Windows Vista PC's through the supply chain? I can just picture the huge sale on old non-Vista PC's that will happen right before that point. That's something that Dell won't have to do.

Apparently, HP has enough influence with MS, that Gates and Co. can't stand to let Dell have an advantage of being able to sell Windows Vista earlier during the peak Christmas season.

I hate to be first one to accuse Microsoft of this (OK, so I'm not the first), but doesn't this delay hurt customers in the name of a "level playing field" in the PC industry?

I'm not always the biggest fan of Dell, but I say if they can have the quickest turnaround, why punish them by ensuring nobody gets to sell Windows Vista before Christmas?

If I was Dell (the company and/or the man), I'd be ticked. But, unlike Intel and AMD, what alternative is there? Please, I don't want 100 emails about Linux, that's not the topic here.

Maybe Microsoft is mad that their XBox 360 launch was plagued by such supply chain problems and shortages, producing far less than demand? Microsoft's hardware supply chain looks more like HP than Dell, so maybe they're kindred spirits in that way??

The Math On Dell's Defects

Something still doesn't seem right, after thinking about it more in a cab ride, about the Dell quality numbers and the cost to repair these motherboards (see first article below). The Dell spokesman claims, in the Business Week article, that it's a "relatively small number" of defective PC's that need the motherboard replaced (here is an article on the tech side of the problem and another dating back to August and another from 2002!).

$300 MILLION is the charge they are taking for this quality problem. Ouch. The cost of poor quality was high, indeed.

Assuming $100 for a motherboard (per the USA Today) and $200 for the repair labor and logistics (my guess), that's 1 MILLION computers.

Even a ridiculously expensive repair, at $1000 each, that's 300,000 defective PC's. Not "relatively few". It's certainly not "relatively few" that matters if it's YOUR computer that won't boot up.

Did Dell pick the "cheap" supplier for the part that failed (supposedly a small capacitor)? Was that supplier really cheapest in the long-term? It seems not. Another reminder of the Deming Principle of not choosing a supplier exclusively on price. If this problem has been known about since 2002, why are these parts still appearing in the marketplace?

It's also curious, why would Dell have to eat $300M in costs? Wouldn't they just push that back on the supplier, if the defect were truly their fault? Wouldn't they push the cost back even if it bankrupted the supplier?

I just don't understand how this could add up to a $300 million dollar mistake.

Would do you think? What would you do if you were in Dell's shoes? What should they have done differently? How would Toyota handle this situation (or another automaker)?

Dell Has "Excess Inventories?"

Article Link --> Dell Will Miss Q3 Target - CIO News Alerts - Blog - CIO

Dell Computer announced they are not going to meet Wall Street estimates for the second straight quarter, so it's open season on them by the analysts and the press.

From my experience, Dell is not a model "TPS" company, but they are usually held up as a "lean" example, mainly due to the build-to-order model, their flow-based factories, and pulling material from suppliers every two hours (we could argue if they are just pushing the problem upstream or not).

But still, they're one of the most successful U.S. companies of the last decade, so you hate to see them hurting. One quote rings loudly:

Many observers, including customers, partners, and analysts, fret that Dell has been cutting costs so much in order to hit financial targets in recent quarters that it has compromised other measures of performance, including customer support and, possibly, product quality. "The key is to keep customers happy in an efficient fashion," says Maxwell. "Not getting the processes right canreally snowball through the system quickly."

You can't just cut costs. "You can't cut your way to greatness" - was that Tom Peters who said that? I've seen quotes from Toyota Georgetown people that say their goal isn't "cutting costs", but rather, "increasing profitability." Dell could learn from that. They might be cutting costs now, but how many customers are they driving away due to poor customer service and quality problems. The Business Week artic